Debt servicing drains $237mn from SBP’s forex reserves in a week

Pakistan's foreign debt and liabilities have increased by $3.48 billion, reaching $128.09 billion in the first quarter of FY24, raising additional economic apprehensions

The State Bank of Pakistan (SBP) has reported a decline of $237 million in its foreign exchange reserves, reaching $7 billion in the week ending December 1.

This reduction is attributed to ongoing debt servicing on foreign loans, a trend that has seen the central bank lose over $1.7 billion since mid-July.

The country’s total liquid foreign reserves, including $5.09 billion held by commercial banks, currently stand at $12.1 billion.

Despite a seemingly stable exchange rate, the growing costs of debt servicing, coupled with a lack of significant inflows, pose economic risks for Pakistan.

The World Bank’s regional vice president for South Asia, Martin Raiser, recently emphasized the country’s economic challenges, noting a low-growth trap, poor human development outcomes, and increasing poverty.

Currency dealers in the interbank market have observed that the SBP has been purchasing dollars for debt servicing, influencing the level of reserves. This practice has led to a tight control over imports, which declined by 17.3 percent year-on-year to $21.5 billion in the first five months (July to November) of the current fiscal year.

The decline in imports, combined with a modest improvement in exports by 1.9 percent, resulted in a 33.6 percent reduction in the trade deficit, amounting to $9.4 billion.

However, concerns are raised as importers face challenges, and the SBP’s restrictions on profit outflows have significantly impacted the outflows of profits and dividends, reaching $485 million in July-October, compared to just $71 million in the same period a year ago.

Furthermore, the country’s foreign debt and liabilities have increased by $3.48 billion, reaching $128.09 billion in the first quarter of FY24, raising additional economic apprehensions.

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